‘Geopolitical Market Panic’: An Example of the Many Sides of War

October 14th, 2014 • 9:21 AM

The semi-annual report of the International Monetary Fund on the world economy, released for the Oct. 11-12 weekend’s IMF/World Bank meetings in Washington, appeared to set off strong stock and bond market gyrations (more down than up) from the moment of IMF Managing Director Christine Lagarde’s first speech about it Oct. 2.

The report said that economic growth was falling globally and would not be much above 2% for 2014, with the collapse of European economies in the center of this. Europe is entering a “triple dip recession,” however pathetically the ECB Director for France Benoit Coeuré tried to deny this in Washington; his own charts showed it, as did those in the IMF report. Japan’s Cabinet Ministry acknowledged Oct. 7 that its data show that country is once again in recession -- “quadruple dip” -- despite, or because of the most aggressive quantitative easing/money-printing yet seen.

But as world stock markets started to fall at the start of this month, the consistent reason was really “geopolitical shocks” -- the rapid metastasis of terrorist groups and warfare in the Mideast and North Africa, and the frightening spread of Ebola in and out of Africa, full of rumors of all kinds.

In response to the IMF report and falling stock markets, central bankers came forward to “take back” their previously leaked plans to raise short-term interest rates. First it was Stanley Fischer of the Federal Reserve Oct. 10, then Bank of England Governor Mark Carney Oct. 11, who tacked back toward making the zero-interest rate policy indefinite.

But, the IMF report also said that the zero-interest rate policy was causing banks in Europe not to lend, deepening the downturn, and instead to push into “excesses in financial risk-taking,” bubbles! The report actually advised that “countries which are subject to bank runs may want to prepare measures to meet them,” and says that 46% of EU banks, with 60% of all EU bank assets, are undercapitalized to severely undercapitalized. The central bankers, then, reacted to the fears of collapse spread by the IMF report, by making them worse.

Clearly the bank regulators’ attempt to “finalize” plans for “bail-in” of megabanks throughout the trans-Atlantic economies, also spread the fear of “runs” and financial collapse triggered by bail-ins.

But on when the New York Stock Exchange plunged again on the afternoon of Oct. 13, this immediately followed rumors of a flight landing at Logan Airport in Boston with ill passengers who just might have Ebola.

“The whole system is coming to a crash simultaneously,” economist Lyndon LaRouche said Oct. 13. Human civilization’s answer to this is the new leadership dynamic it now has from the BRICS countries and those nations associated with them: Not geopolitics, but development.